China service sector activity rises to three-month high-Caixin PMI

BEIJING (Reuters) - Activity in China’s services sector expanded at the fastest pace in three months in August as new orders rose, prompting the biggest increase in hiring in over a year, a private survey showed on Wednesday.

People stand on the sidewalk at Lujiazui financial district in Pudong, Shanghai, China March 14, 2019. REUTERS/Aly Song

Stronger job creation by services firms will be welcome news for Beijing, which is struggling to reverse a prolonged slump in the manufacturing sector which has dragged economic growth to near 30-year lows.

The Caixin/Markit services purchasing managers’ index (PMI) picked up to 52.1 last month, the highest since May, compared with July’s 51.6. The index has stayed above the 50-point that separates growth from contraction on a monthly basis since late 2005.

New business accelerated slightly to a four-month high, with companies citing improving underlying demand and a boost from new projects.

But a sub-index for export orders pulled back from July’s three-month high, possibly due to heightened U.S.-China trade tensions.

Washington began slapping 15% tariffs on a wide range of Chinese goods on Sunday - including footwear, smart watches and flat-panel televisions. Tariffs of 15% on cellphones, laptop computers, toys and clothing are to take effect on Dec. 15.

The private survey’s findings largely dovetailed with an official gauge last week, which also showed improving service sector conditions.

“China’s economy showed clear signs of a recovery in August, especially in the employment sector,” said Zhong Zhengsheng, Director of Macroeconomic Analysis at CEBM Group, in a statement alongside the data.

There were signs that government growth boosting measures were gradually kicking in, Zhong said.

“However, the Sino-U.S. trade conflict remained a drag, and business confidence remained depressed,” Zhong added.

While business optimism for the year ahead improved, the reading was still below levels seen in late 2017 and early 2018 before the two countries began imposing tit-for-tat tariffs.

“Still, there’s no need to be too pessimistic about China’s economy, with the launch of a series of policies to promote high-quality growth,” Zhong said.

So far, Beijing has relied on a combination of fiscal stimulus and monetary easing to cushion the broader economic slowdown, including hundreds of billions of dollars in infrastructure spending and tax cuts for companies.

But those measures have been slow to trickle through the economy, and with U.S. trade pressure intensifying analysts believe a deeper downturn could be inevitable without further policy support.

China rolled out some consumption-boosting measures last month, including the possible removal of curbs on auto purchases, though details were sketchy.

The services sector accounts for over half of China’s economy, providing an important buffer to mounting export pressures. But growth has been generally cooling over the past year as businesses and consumers grow more cautious on spending.

Caixin’s composite manufacturing and services PMI, also released on Wednesday, ticked up to a four-month high of 51.6 in August from 50.9 in July, though factory orders remained weak.

Reporting by Roxanne Liu and Se Young Lee; Editing by Kim Coghill